Primary dealer

A primary dealer is a firm that buys government securities directly from a government, with the intention of reselling them to others, thus acting as a market maker of government securities. The government may regulate the behavior and number of its primary dealers and impose conditions of entry. Some governments sell their securities only to primary dealers; some sell them to others as well. Governments that use primary dealers include Belgium, Canada, China, France, Hong Kong, India, Italy, Japan, Singapore, Spain, the United Kingdom, and the United States.

The relationship between the Fed and the primary dealers is governed by the Primary Dealers Act of 1988 and the Fed's operating policy "Administration of Relationships with Primary Dealers."[5] Primary dealers purchase the vast majority of the U.S. Treasury securities (T-bills, T-notes, and T-bonds) sold at auction, and resell them to the public. Their activities extend well beyond the Treasury market. For example, according to the Wall Street Journal Europe (2/9/06 p. 20), all of the top ten dealers in the foreign exchange market are also primary dealers, and between them account for almost 73% of foreign exchange trading volume. Arguably, this group's members are the most influential and powerful non-governmental institutions in global financial markets. Group membership changes slowly, with the current list available from the New York Fed.[1]

The current system of primary dealers was set up in 1960 with 18 dealers. The number of primary dealers grew to 46 in 1988, declined to 21 by 2007 and stands at 23 in April 2016.[7]

The most recent addition to the list of primary dealers was Wells Fargo Securities LLC on April 19, 2016. The last previous addition was TD Securities (USA) LLC on February 11, 2014. Name changes of the firms are fairly common as are withdrawals due to mergers; for example, when Merrill Lynch was taken over by Bank of America, the Merrill Lynch name was at first withdrawn but the Bank of America dealer firm was later renamed Merrill Lynch.[8]

Current primary dealers with the Federal Reserve Bank of New York[edit]